This Article is From Oct 19, 2013

Strapped for cash? 6 alternatives to personal loan

Strapped for cash? 6 alternatives to personal loan
New Delhi: When you are in dire need of cash, the easiest option seems to be taking a personal loan. But with interest rates going through the roof, it's not quite wise to get into the vicious cycle of debt. Banks also tend to look at your entire financial profile before approving your loan. What if you had options apart from personal loan in times of crisis?

Here are some alternatives to personal loan

  1. Loan against fixed deposits: This is the quickest possible loan because banks lend against their own fixed deposits. The repayments of this type of loan should be done within the fixed deposit tenure. The biggest advantage is there is minimal documentation required and loans are available over 80 per cent of the fixed deposit value. Also, your fixed deposit continues to earn interest even during the tenure of the loan. However, you must discipline yourself to repay the loan every month like an EMI or equated monthly instalment.

  2. Gold loan: What initially started off as a popular source of finance in rural and semi-urban areas, gold loans have off late become extremely popular in the metros as well. This type of loan provides immediate liquidity on the basis of one's jewellery without having to sell it away. Further, there are no processing charges and pre-payment fees. The loan amount depends on the purity and weight of the gold that is given. Although this loan does not necessitate previous credit history, banks are going stringent on these after recent RBI regulations. Further, the interest is not cheap and is comparable with personal loans.

  3. Loan against property: You can borrow against your property and the loan amount is calculated on the basis of value of property and the borrower's capacity to repay. Re-financing the property is an option if the value of loan is to be increased or the property value has risen over a span of time. Failure in prompt repayment can result in loss of ownership, and hence absolute care must be taken, as a property is usually of higher value than any other form of security.

  4. Loan against shares: Banks lend against the shares of specific companies which you hold. However, not all shares you hold qualify for such loans. Each bank has a different list of approved securities which qualify for such loans. The amount depends upon valuation of security and ability to repay and service the loan. Although you can receive money without liquidating your investments, the amount granted as a proportion of the security offered is much lower compared to other forms of loans. With present volatile stock markets, this may not come cheap as well.

  5. Loans against life insurance policies: Loans that are granted on the basis of life insurance deals have lower rates of interest and easy options for repayment. The loan amount is dependent on the value of the policy. It can be repaid anytime during the term of the policy. In the event of an unpaid loan amount, interest will be deducted from the claim. This is a quick loan with minimal documentation.

  6. Loan against Public Provident Fund (PPF): Loans can be taken ahgainst PPF but with tenure only up to 2 years. If the first loan is repaid, the borrower is entitled for another loan if they are within 3 to 6 years of opening an account. The benefit of this loan is that you can borrow without breaking your PPF and also with minimum documents.

BankBazaar.com is an online loan marketplace.

Disclaimer: All information in this article has been provided by BankBazaar.com and NDTV Profit is not responsible for the accuracy and completeness of the same.